Comprehensive Housing Update For September: More Signs Of Sales Rolling Over

Sep. 28, 2018 12:22 AM ETVNQ, IYR, XHB, ITB, RQI, SCHH, RNP, RFI, KBWY, DRN, NRO, URE, ICF, XLRE, JRS, RWR, SRS, FREL, DRA, PKB, DRV, SEVN, NAIL, LRET, REK, RIT, FRI, PSR, HOML, USRT, WREI, CLAW, IARAX, RORE, BBRE, PPTY3 Comments
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New Deal Democrat
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Summary

  • Housing sales are a very important long leading indicator.
  • Housing sales typically peak first, followed by prices, and last by inventory.
  • All of the sales data in September has been consistent with sales rolling over.
  • Most price measures continue to rise, as does inventory.
  • While there are a few discordant data points, I do not expect an autumn surge to rescue housing sales as happened in the last two years.

Introduction

Wednesday morning's report on new home sales winds up the important housing data for August, and the bottom line is: while there are contrary indications, there is more evidence that housing sales are rolling over.

Let me repeat my housing mantra:

  • interest rates lead sales
  • sales lead prices
  • prices lead inventory

This doesn't mean that inventory doesn't have an effect on prices, or that prices don't have an effect on sales. They do. It simply means that the effects of high prices, e.g., will show up in sales even as prices continue to rise.

Mortgage interest rates

Let's start with a look at mortgage rates, and their effect on sales.

Here are mortgage rates since their low in May 2013, from which I've subtracted 4.5%:

What this shows is, although the immediate move in the 2013 "taper tantrum" was more dramatic, interest rates only remained elevated for a limited time: only five months of the next nine over 4.4%, and only two months total over 4.5%. This year they have remained over 4.4% for seven straight months, and above 4.5% for the last five.

Now let's see how that affected housing sales, by adding in single family permits (the least volatile metric) in red (right scale):

Notice that increases in housing permits stopped in late 2013 and for the first 8 months of 2017, slightly after hefty increases in mortgage rates. In the beginning months of 2016, they also slowed down briefly. By contrast, when mortgage rates declined in late 2014-15, and the last eight months of both 2016 and 2017, shortly thereafter issuance of housing permits increased at an accelerated pace.

This year the trend in permits has actually been downward since February, the steepest such decrease since the bottom in 2011.

Since mortgage rates remain at

This article was written by

New Deal Democrat profile picture
3.69K Followers
New Deal democrat As a professional who started an individual investor for almost 30 yeas ago, I quickly focused on economic cycles and the order in which they typically proceed. I have been writing about the economy for nearly 15 of those years, developing several alternate systems that include mid-cycle, long leading, short leading, coincident, lagging and long lagging indicators. I also focus particularly on their effects on average working and middle class Americans.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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